IPOs are how we knight companies in this country, so it’s exciting to see Coinbase be honored in such a way for its contributions to the crypto world and its promise of continued growth. Plus, an entirely crypto-based company going public is a big stinkin’ deal, because it lends huge credence and legitimacy to the future of cryptocurrency.
Of course, the Coinbase IPO isn’t purely ceremonial. A crypto company going public presents a highly unique opportunity to investors – one like we’ve never quite seen before.
So what exactly is going on with the Coinbase IPO? What makes it so special and unique for investors? Lastly and most pertinently, should you invest in COIN yourself?
Let’s dive into the Coinbase IPO.
What is Coinbase, and what led to their market domination?
Here are some basics about Coinbase you’ll want to know before diving into its IPO.
Coinbase is America’s largest cryptocurrency exchange platform by trading volume. Launched in 2012, Coinbase now lets anyone with a credit card buy, sell, and trade over 100 different cryptocurrencies, including Bitcoin and “altcoins” like Ethereum and Litecoin.
So why did Coinbase end up dominating the American crypto market? Well, for a few reasons:
Coinbase was one of the first platforms to insure crypto investments
Security is a major concern of anyone with money to protect. That’s why people have invested in safes and padlocks for centuries, and folks weren’t even keen on giving banks money until the FDIC began insuring deposits in 1933.
That’s why many experts viewed cryptocurrency as a bafflingly unsafe investment in the early days. After all, if cyber criminals empty your bank account with Chase, you’re automatically covered. If they take your crypto? Too bad, so sad.
So when headlines started popping up in 2014 questioning the security of an uninsured currency, Coinbase went “uh, our crypto is insured, and has been for a year.” Needless to say, the company’s willingness to pay out-of-pocket for consumer protection wasn’t forgotten.
Coinbase is dedicated to crypto education and acceptance
While other crypto marketplaces did little more than facilitate trades, Coinbase went so much farther. The company’s goal wasn’t just to smooth out the purchase of Bitcoin, but to accelerate its global acceptance as a real-world currency.
As early as 2014, Coinbase had built relationships with companies like Dell, Expedia, Time, Stripe, and PayPal, helping them understand crypto and begin accepting it as an alternative form of payment. Those Now Accepting Bitcoin signs from the mid-2010s did wonders for public awareness and perception of cryptocurrency (though I feel bad for anyone who spent 10,000 bitcoins on pizza).
Coinbase is also dedicated to the ongoing education of new and experienced users. Through Coinbase Learn, you can take online classes in Bitcoin basics, blockchain, the importance of wallets, and more – all free of charge. I also like how it’s organized by topic, since most new investors have likely heard words like “Ethereum” and “Token” but have no idea what they are.
Lastly, Coinbase plays ball with the feds
Undoubtedly, a major factor in the SEC’s approval of the Coinbase IPO was how the company has held up under regulatory scrutiny. The U.S. government hasn’t quite figured out how to regulate crypto but they’ve sure as hell figured out how to tax it, and Coinbase users were their first target.
In December 2016, the IRS demanded the records and trade logs of 500,000 Coinbase users so they could go after them for tax dodging. Coinbase said look, we get it, crypto should probably be taxed like other capital gains, but no way are you getting everyone’s private info.
So Coinbase counter-offered with the records of 13,000 users who’d purchase $20,000+ of crypto between 2013 and 2015, and to their credit, gave those users plenty of notice. Subjectively I think this was a fair response, and the SEC’s approval of the Coinbase IPO indicates that the feds do, too.
In short, Coinbase earned its place as the first major crypto company to go public by insuring its consumers’ investments, educating the masses, and appeasing the U.S. government.
Here’s a quick refresher on IPOs
An IPO, or Initial Public Offering, is when a private company begins selling stock to public investors for the first time (hence the phrase “going public”).
Here are three key things you should know about IPOs before going deeper into this piece:
- They’re the business equivalent of becoming an Eagle Scout. To even qualify for an IPO, a company must meet rigorous standards set by the SEC, like a $1 billion valuation, proven fundamentals, projected investor demand, and/or extremely high likelihood of long-term success. Therefore, going public is often seen as a highly prestigious and proud moment in a company’s history.
- They legitimize the company and the industry. A successful company in a dying industry likely wouldn’t qualify for an IPO, since there would be little investor interest. Therefore, an IPO lends legitimacy not only to the company going public but the industry it belongs in.
- They signal long-term stability. A core requirement of an IPO is that investors will be interested in buying the stock. And investors are only interested in stocks that’ll stick around and rise in value. So for investors to say “yes, we think Coinbase will stick around and make us money” is a pretty big deal.
The Coinbase IPO is a “direct listing” – here’s what that means
Before I dive into what’s really special about the Coinbase IPO, here’s something that’s not super special. You’ll still hear a lot of investors mentioning it, so I’ll cover it here.
Technically speaking, the Coinbase IPO isn’t an IPO. It’s a direct listing, or when a company sells its own shares directly to the public without an intermediary like an investment bank doing the underwriting.
It’s a bit like how Tesla sells cars directly to consumers instead of through dealerships; a direct listing places more liability on the company to sell shares, but it’s cheaper and helps them retain more control. Direct listings are rare now, but more and more big companies are considering them. Spotify had a pretty successful direct listing in 2019.
What difference does a direct listing make to an investor like you and me? Not much. You’ll still see shares listed on apps like Robinhood and Webull, and although the company is only selling existing shares (not new shares), that’s still 114.9 million shares. So when the direct listing launches, there should be plenty of stock to go around; you won’t have to deal with the same scalpers that scooped up all the PS5s.
Here’s what makes the Coinbase IPO so unique
Coinbase is a unique company in many ways (they don’t even have a physical HQ, for example) but their IPO (sorry, direct listing) is on a totally other level.
Here are a few ways the Coinbase IPO (ticker: COIN) is about to rock our world:
COIN legitimizes Coinbase and crypto
For over a decade, cryptocurrency companies have languished under a wet blanket of skepticism, scrutiny, and downright ridicule. Even the world’s richest living meme, Mark Cuban has thrown jabs at the crypto community, saying he’d “rather have bananas than bitcoins.”
Many early crypto evangelists like Jeremy Gardner thought their big “I told you so” moment had finally come when BTC hit $1,000, $5,000, then $50,000. But even as crypto buyers made money hand over fist, many traditional banks and investors stayed away – not entirely out of jealousy, mind you, but out of fear. Fear of security issues, a lack of regulation, and another devastating bubble burst as we saw in ‘01 and ‘08.
General fears of crypto’s unknowns aren’t entirely unwarranted. There’s no guarantee that a crypto bubble burst won’t happen, and regulation is definitely coming, as evidenced by the IRS’s massive crackdown on trading.
But rising fears and impending regulation are exactly why the Coinbase IPO is so perfectly timed. By legitimizing a cryptocurrency company (a public exchange, no less), the banks, the SEC, and legions of hungry investors are all finally acknowledging that crypto is here to stay.
Coinbase going public is like a progressive indie film winning an Academy Award: a sign of hope, acceptance, and a positive change in the wind.
COIN offers the first true crypto/stock hybrid asset
The Coinbase IPO allows you to buy stock in a crypto company. Let’s unpack the significance of that and what it means for investors.
Earlier I mentioned how Coinbase is the first major crypto company to go public. There have been others, especially blockchain companies, but none with a $90 billion valuation like Coinbase.
Also, none of the other crypto stocks or ETFs have their value so closely tied to crypto itself. The stock price of smaller companies can fluctuate wildly based on tons of non-crypto factors like management, mergers, and failed technology.
But Coinbase is well-established; they’re in a rhythm operationally, and they aren’t looking to get acquired. Therefore, investors seem to agree (and Coinbase agree themselves) that the share price of COIN will largely be based on the daily value and trading volume of cryptocurrency.
For the first time ever, the share price of a publicly traded company and the value of Bitcoin will be inextricably linked. In essence, we’re seeing the first stock/crypto hybrid asset.
Here’s why that’s a big honkin’ deal:
COIN lets timid investors finally dip into crypto without buying crypto
The launch of a stock that closely reflects the value and trading volume of crypto means that anyone who’s either uncomfortable buying crypto or simply unable to due to their investment parameters, can suddenly do it.
Gladys, the 69-year-old retiree who wants crypto but only understands stock, can just buy COIN. Priyan, the 33-year-old wealth advisor who wants to increase returns for his clients but isn’t allowed to buy crypto, can just buy COIN.
Like the Suez Canal, COIN stock is going to open a vital trade route between two worlds: the comparatively calm waters of stock with the high seas of crypto. It’s certainly exciting, and undoubtedly one to watch.
Should you invest in Coinbase stock? Three things to consider first
I’ll be the first to admit that everything I just said probably tees COIN up to be a grand slam of an IPO (sigh, direct listing). But before you think of investing, you should know a few things about COIN and IPOs in general, like:
Most IPOs end up failing (even the unicorns)
By their very definition, every IPO is supposed to be a grand slam. Companies and their underwriting teams spend countless millions and man-hours ensuring that they will be – otherwise, they wouldn’t go public in the first place.
And yet, roughly 60% of IPOs are a flop, losing money for investors after five years. Recent high-profile bombs include the IPOs of Zynga, Slack, and Lyft.
So while the Coinbase IPO certainly has plenty going for it, no IPO is bulletproof.
The link between COIN and the value of Bitcoin isn’t all good
For investors, the tether between COIN and Bitcoin can be like skateboarding behind a Corvette. Sure, you may quickly pass other skateboarders – but if the ‘Vette stops you stop. And if the ‘Vette crashes, well, you get the picture.
And I’m not trying to rain on anyone’s crypto parade – I’m just paraphrasing what Coinbase said in their own financial projection reports to the SEC, as covered by MSN:
“Given the inherent unpredictability of our business […] we are providing a range of possible scenarios for full-year 2021.”
Coinbase gave three plausible scenarios:
- High – market cap rises as trading volume inflates.
- Medium – market cap stagnates as trading volume tapers off.
- Low – market cap plummets due to a dip in crypto value or volume.
How likely is each scenario? It’s virtually impossible to tell. “To state the obvious, our business is hard to forecast,” wrote Coinbase Chief Financial Officer Alesia Haas.
In short, for better or worse, COIN stock could be just as volatile as Bitcoin itself.
At the end of the day, COIN is still just a stock
There’s a lot to be excited about when it comes to the Coinbase IPO, from how it legitimizes crypto, bridges two separate worlds of investing, and offers the world a unique hybrid asset…
But at the end of the day, COIN is just a stock – and it’s important to consider it as such when potentially adding it to your portfolio. Diversification is key, as always, and no single asset deserves the lion’s share of your investment holdings.
That’s not to say you can’t have any high-risk assets in your portfolio (e.g. IPOs, crypto, REITs). In fact, high-risk, high-yield assets can actually lend diversity when balanced with low- to medium-risk investments like bonds and ETFs.
I couldn’t resist closing with another Corvette analogy, but I promise it’s worth it. That’s because IPOs really are like Corvettes. They’re fast, exciting, and everyone thinks their Corvette is special (when they really aren’t).
But the Coinbase IPO is like the newest C8 Corvette; it really is special. With the engine behind the seats and a 0-60 time of 2.9 seconds, it’s a game-changer. It’s a totally new Corvette like we’ve never seen, and everyone knows it.
That doesn’t mean a C8 Corvette is the right car for everyone. It’s expensive, unpredictable at high speeds, and its staggering potential means it can crash harder than any Corvette before it.
Am I saying you shouldn’t buy a C8 Corvette? Not at all; if it’s a fit for your garage, go for it. Just do your research, get a good price, and be careful – don’t put your foot down too hard on day one.